Stocks Have Crashed EVERY TIME These 2 Indicators Flashed Red… Spoiler Alert: They’re Back

Let’s hit the pause button on the perpetual stonk rocket ship that’s been zooming to the moon. Today, we’re dialing down the “Everything is Awesome” anthem from the Lego Movie and bringing in a big, damp wet blanket of reality. The Buffett Indicator… a financial metric that’s been right on the money since the beginning of times (unlike some other so-called experts we could mention) is flashing some major red flags.

So, what’s the deal with the Buffett Indicator? It’s Warren Buffett’s method for checking if the stock market is getting a little too big for its britches. Essentially, this indicator compares the total market capitalization of all U.S. stocks (think Wilshire 5000, the ultimate stock market squad) to the Gross Domestic Product (GDP). When this ratio skyrockets, it signals that the market might be puffing itself up a bit too much.

According to the number gurus at Longtermtrends, our current Wilshire 5000-to-GDP ratio is sitting at a staggering 208%. To put that into perspective, during the Dot-Com Bubble of 2000, this ratio peaked at 140%, and just before the Great Financial Crisis of 2007, it was around 110%. Cue the “f!@# around and find out meme.”

But wait… there’s more bad news. Bank of America just dropped a truth nuke: fund managers are cutting their cash reserves to a laughable 3.9% (the lowest since December). According to BofA strategist Michael Hartnett, this has been a sell signal for global equities every single time since 2011. The MSCI All-Country World Index has followed this signal with a 2.4% loss the following month, without fail.

And the U.S. equity obsession isn’t helping. Fund managers are now the most “overweight” on U.S. stocks relative to the Eurozone since checks notes June 2012. Yet despite all the flashing red lights, some analysts are still tossing around rose-colored predictions. For example, BofA is calling for the S&P 500 to hit 6,666 by 2025.

Even Cathie Wood from Ark Invest (everyone’s favorite stock market hype queen) is doubling down, waving the Trump pro-growth policy banner like a foam finger at a sports game. According to her, the market’s already pricing in positive changes. (Great. Nothing screams stability like optimism from Cathie and her 40-year price targets.) At this rate, we might as well start a countdown, "On the first day of Christmas, Wall Street gave to me... another crash prediction." By the 25th, we’ll have enough doomsday forecasts to fill an entire advent calendar.

P.S. While everyone’s debating on if the stock market is in correction territory…

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Until then, keep an eye on the market and stay ready! Catch you next time…

Stock.News does not have positions in companies mentioned.